Doctrine of Frustration

Introduction:

The main purpose of dealing with Contract is to bind both the parties to fulfill their commitment/obligation and to set their rights, obligation, damages and remedy in case of breach of contract to both the parties. The Doctrine of Frustration is an exception for it. The Doctrine of Frustration is used when? a contract becomes impossible to fulfill and eventually becomes void incase due to some unforeseen or impossible situations. This doctrine is based on the Latin maxim? “Les Non Cogit Ad Impossibilia” which means law cannot force a person to perform a contract which is impossible due to unforeseen reasons.

In such circumstances, the promisor cannot be bound to obligate with the contract. The Indian Contract Act, 1872 does not specifically define Doctrine of Frustration but Section 56 of Indian Contract Act, 1872 states that when a contract becomes impossible or by reason of some event which the promisor could not prevent, unlawful, becomes void.

Essentials grounds of Doctrine of Frustration:

1. Impossibility of Performance: When promisor finds that performing of contract is impossible or impractical which changes the event and very foundation of contract.Illustration: If ‘A’ and ‘B’ enter into a contract that ‘A’ will provide transportation service to ‘B’ but due to some natural calamity the roads were closed then ‘A’ cannot perform the contract.
2. Destruction of subject matter: When the subject matter of the contract itself totally destroys, then the contract will be frustrated.Illustration: ‘X’ enters into contract with ‘Y’ for booking a hall for performing an event of ‘X’ but on the date of event, the hall where the event is scheduled burns down, then the contract becomes void.
3. Death or incapacity of party: When the promisor or other party to the contract has entered into a contract to physically perform the terms of the contract but they couldn’t perform the contract due ill health or some other reason then the contract is frustrated.Illustration: When ‘A’, a band company has taken advance payment from B for performing for an event but due to ill health or death ‘A’ couldn’t perform on ‘B’s event the contract can be said as void.
4. Frustration by legal or Government intervention: When a new Law/ Directive has been enacted after entering into contract, then the contract becomes frustrated.Illustration: ‘A’ enters into a contract with ‘B’ that ‘A’ will provide 50 bags of Methyl Bromide, but the Government bans the Methyl Bromide then the contract will become void.
5. Changes of circumstances: When the parties have entered into a contract, but the circumstances have changed, the contract will dissolve.Illustration: When ‘X’ enters into a contract with ‘Y’ to provide transportation for? goods but due to Covid-19 government imposed restriction on moving from one place to other, then the contract will dissolve.
6. Intervention of war: When performance of contract becomes impossible to fulfill due to war.Illustration: When ‘X’ an Indian company enters into contract with ‘Y’ a Russian company that ‘Y’ will provide material for ‘X’ company manufacturing but after entering into contract war breaks out between Russian and India then the contract can be considered as void.

Case Laws:

In Energy Watchdog v. Central Electricity Regulatory Commission & Ors. 2017 SCC Online SC 378 a public notice was issued to invite proposals for power supply. Adani Enterprises was selected by the parties for power supply and entered into agreement for the same. Later there was a hike in coal from Indonesia as a result Adani Enterprises filed a petition to discharge them from performing their contractual obligations. The court held that a hike in prices of export of coal from Indonesia does not make the contract incapable of being performed and the contract cannot be frustrated.

Conclusion:

As evident from the numerous examples provided earlier, it is evident that in certain situations, a contract may become unworkable or unfeasible due to circumstances beyond anyone's control. In such cases, attempting to enforce the contract legally against the party who made the promise (the promisor) would be unjust. The Doctrine of Frustration serves as an exception to the standard rule and the principles outlined in Section 56 of the Indian Contract Act, 1872.

This means that neither party is held accountable for non-performance, and the contract essentially comes to an end due to factors that were unforeseeable and beyond their control. This legal principle aims to strike a balance between upholding the sanctity of contracts and recognizing the practical limitations that can render a contract unenforceable when extreme and unforeseen events occur.